Whistleblowers, con artists and corruption top slate at ACFE confab

Hollywood, Calif. -- Bribery, corruption, money laundering, financial statement fraud, the Enron whistleblower, and an accounting manger convicted of swindling $300,000 from his company. While its sounds like the ingredients for a potential potboiler at one of the nearby movie studios, those were some of the topics showcased at the Association of Certified Fraud Examiner's 13th Annual Fraud Conference & Trade Show.

Nearly 1,000 attendees -- including many CPAs -- gathered at the Hollywood confab, where Enron vice president Sherron Watkins offered an insider's perspective on the infamous energy trader's demise and shared her thoughts on the corporate reform legislation during a keynote luncheon address.

"Overall, investors lost over $60 billion on Enron in just under two years and Enron went bankrupt without ever declaring or having a poor quarter relative to recurring earnings," Watkins noted.

Major changes in financial accounting rules are needed to restore public confidence in the capital markets, she told the group. "The financial accounting rules have become too rule-based and not principle-based. Companies feel like they are justified in reporting results by finding a set of accounting rules they think applies to their business and applying those rules even if there’s no resemblance to the financial condition of the company or the operations of the company," she said. "The idea that a set of financial statements is supposed to fairly represent the condition of the company appears to have gone out the window."

Watkins said that she feared that the United States’ financial accounting system has "morphed into something like the tax code."

"It’s pretty much everyone’s God-given American right to take the tax code and interpret it as liberally as you can to minimize your taxes," Watkins said. "The problem I see is that even though there are problems in the executive suite at Enron, we also had massive failures by the watchdog groups that are in business to protect investors."

Watkins spoke candidly about the events leading up to the Houston-based energy trader’s implosion. Explaining that she is looking for another job while still working at Enron on some bankruptcy projects, she joked, "The problem is that being a well-known whistleblower can hinder your job prospects."

John Everroad Jr., an accounting manager, told the tale of how he embezzled over $300,000 from a former employer over a nine-month period in 1998. Everroad was convicted in 1999 of two counts of theft by deception and sentenced to three to eight years in the Nebraska State Penitentiary. After serving 20 months, he was paroled in May 2001. He currently works for Marriott Corp. in a work-release program in Omaha, Neb.

Everroad described his scam as a typical check-writing scheme. "I wrote $1.5 million in checks to myself, wrote $1.2 million back to the company and pilfered the difference," He told the group. Everroad, who wasn’t even a signer on the company’s accounts, said that he forged the owners’ names, but no one noticed because the company has better cash flow than they thought. He was eventually caught by the fraud detection area of his bank, which suspected unusual transactions and watched his account.

"We blend in well," Everroad told listeners. "Security checks don’t show 26 collectible cars in the garage or 4,000 dresses in the closet. I was astonished at the things that went unnoticed," he said. "Some of the employment decisions I made at times were based on where I thought crimes could be committed."

Everroad said that he moved everything to cash so that the trails didn’t lead investigators to bank accounts or investment accounts. In answer to the often-asked question, "Why did you do it?" Everroad said his philosophy was, "It’s fun to find a person who you perceive to be stupid. And if they’re stupid, they deserve to be robbed."

Practitioners learned to "build a better mousetrap" in a session on internal controls led by Ira H. Shoen, an internal controls specialist with the FDIC in Annandale, Va.

"Without effective controls, you’re sunk," Shoen warned. "To be effective, controls must be driven by your firm’s mission; must be measurable by results; and must be an integral part of your business," Shoen said. He outlined five basic steps to building a better mousetrap:

Analyze and evaluate your environment. in other words, make sure you’ve figured out what the problem really is.

Stop potential problems at the source. have controls in place throughout the process, not just at the end when it may be too late.

Check your assumptions by recreating the problem.

Document the situation and take action as needed.

Periodically test your controls under actual conditions.

A general luncheon session by Assistant U.S. Attorney J. Scott Newton looked at new laws affecting fraud examiners. Newton detailed the U.S. Patriot Act of 2001, the congressional response to the Sept. 11 attacks on New York and Washington D.C., which was signed on Oct. 26, 2001. The act gave the federal government broad new powers, enhanced surveillance powers, provided for nationwide search warrants, made it easier to share information with foreign governments and strengthened money laundering laws."September 11th forever changed the perspective we have toward freedoms we may have previously taken for granted," said Newton, who added that the war against terrorism "is a war that will be won on the financial battlefield, by people like us, who follow the money."In a session titled "Developing Benchmarking Strategies in Fraud Prevention for Your Client," certified forensic document expert James Blanco gave CFEs tips for uncovering payroll and invoicing scams and spotting phony documents, while ACFE president and chief executive Toby J.F. Bishop taught CFEs how to conduct a fraud prevention checkup.

In addition, the Association of Certified Fraud Examiners announced a number of new initiatives in the works. Among them is a planned year-end launch of the first Institute for Fraud Studies at the University of Texas, at Austin, chairman Joseph Wells told attendees. The goal of the IFS will be to study the causes and cures of fraud. It will be funded through donations and grants from the ACFE and other partners, including the American Institute of CPAs.

"The IFS will take the most comprehensive look at fraud we believe exists," said Wells. "The institute will look at fraud from a multidisciplinary perspective. It will examine it from an accounting perspective, a legal perspective, a computer fraud perspective and a sociological perspective."

Wells said that contributions from the ACFE, AICPA and other partners are expected to total between $1 million and $2 million for the first year or two. An executive director will be named by the end of December. The IFS, which is expected to be up and running by Jan. 1, will also have a board composed of academics, practitioners and government officials.

One of the first research projects that the IFS will tackle, which could begin next fall, will be to study how investors can better protect themselves against fraud, Wells said.

And the ACFE is also rolling out a professional fraud education program. "There are a half million CPAs in the United States, and I’m confident in projecting that at least 400,000 of them haven’t had any anti-fraud education," Wells said. "CPAs have a major role in detecting fraud, whether they want the responsibility or not. They are on the front lines in the war on fraud. It’s a war that cannot be won without CPAs."

To that end, the association will launch a four-hour online anti-fraud education course that will be available worldwide at the end of the year. While pricing had not been worked out at the time of the announcement, Wells said that the fee for the course will be "nominal."

The ACFE will also open a European office in the United Kingdom, where the largest contingent of its 1,500 European members are based. An international CFE exam is also in development.

The ACFE honored former U.S. District Attorney Mary Jo White, a partner and chair with the law firm Debevoise & Plimpton, with its highest honor, the Cressey Award. The award, named for white-collar crime research pioneer Dr. Donald R. Cressey, is given for lifetime achievement in fraud detection, deterrence and prosecution.

In today’s digital-first, ever-changing world, is your Site Builder site still able to support the types of online experiences your customers expect? Perhaps it’s time to take a look at SuiteCommerce Standard, NetSuite’s newest addition to the SuiteCommerce family.